In the first of many annual letters Chamath Palihapitiya will be penning as part of his firm’s new era as a technology holding company, the founder of Social Capital criticized the venture capital industry.

After highlighting the latest trends within VC — i.e. SoftBank’s Vision Fund, private equity activity in VC deals and inflated valuations — Palihapitiya divulged the asset class’s biggest problems. A copious amount of capital is flowing through the industry and VCs have an insatiable appetite for “unicorn status.” As a result, investors are paying more and more for equity in startups at all stages, hurting both startup employees and limited partners, who ultimately have to foot the bill.

“The dynamics we’ve entered is, in many ways, creating a dangerous, high stakes Ponzi scheme,” Palihapitiya, a former Facebook executive, wrote. “Highly marked up valuations, which should be a cost for VCs, have in fact become their key revenue driver. It lets them raise new funds and keep drawing fees.”

LPs and startup employees are suffering as a result of VC greed. Why? According to Palihapitiya, LPs are seeing delayed returns and startup employees are being offered stock options at inflated prices to match a company’s sky-high valuation.

“VCs bid up and mark up each other’s portfolio company valuations today, justifying high prices by pointing to today’s user growth and tomorrow’s network effects. Those companies then go spend that money on even more user growth, often in zero-sum competition with one another. Today’s limited partners are fine with the exercise in the short run, as it gives them the markups and projected returns that they need to keep their own bosses happy.”

“Ultimately, the bill gets handed to current and future LPs (many years down the road), and startup employees (who lack the means to do anything about the problem other than leave for a new company, and acquire a ‘portfolio’ of options.)”

Social Capital has had a rough go of it lately. The firm made the call to stop accepting outside capital about a month ago, with plans to invest off a “multi-billion dollar balance sheet of internal capital only.” That decision followed a string of high-profile exits that cemented the supposition that Social Capital, as we’ve known it, was over.

In his new role as a leader of a tech holding company, not a VC firm, Palihapitiya claims to have the solution to the aforementioned problem plaguing the venture and startup industry: “Return to the roots of venture investing.”

“The real expense in a startup shouldn’t be their bill from Big Tech but, rather, the cost of real innovation and R&D,” he said. “The second is to break away from the multilevel marketing scheme that the VC-LP-user growth game has become. At Social Capital, we did this by actively shifting away from funds and LPs to rely only on our own permanent capital moving forward.”

“Are we crazy to reject tens of millions of dollars a year in fees? We think not, and we believe it’s time to wait patiently as the air is slowly let out of this bizarre Ponzi balloon created by the venture capital industry.”